Q1 2020 Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to Elbit system first quarter 2020, <unk> results Conference call. All participants are present in listen only mode. Following managements formal presentation instructions will be given a further question for the question.
And then answer session. As a reminder, this conference is being recorded you should have all received by now the company's press release.
I would now like to hand over the call to Mr. Rami Mayerson.
Oh, but just some investor relations director Rami. Please go ahead.
Thank you Ray good day, everyone and welcome to our first quarter Twentytwenty earnings call.
With me today, I would see Mcmanus, president and CEO and Yossi Gaspar, our Chief Financial Officer.
Before we begin I would like to point out that the safe Harbor statement in the company's press release issued and yesterday also referred to the contents of this conference call.
She will begin by providing a discussion of the financial results followed by Butzi you talked about some of the significant events during the quarter NPRM.
We will then turn the core arbitrary question and answer session.
That I would like not to turn the corner over to Yossi Yossi James.
Thank you Rami.
Hello, everyone and thank you for joining me today.
Before reviewing all financial results I would like to address that Colby 19, Penn damage and the global economic environment.
Well I'm only going to situation closely and not on eating today structures of the goldman's olden days completion, which we operate.
During the first quarter of Twentytwenty, all businesses were not materially impacted by the pandemic.
Subsequent to the some of our businesses have begun to experience or certain disruptions due to government directed safety measures travel restrictions and supply chain delays.
As of today, the financial impact of these disruptions has not been much easier.
As we reported on April 13, we have implemented to Cdrs actions to protect the safety of all employees maintain business, continuing <unk> and our supply chain and leverage our abilities to assist to protect our communities. All these actions remain ongoing.
We have also initiated a series of cost control measures to mitigate any financial impact on the company.
Hello to the measures with stating to maintain.
Business continuity and the LIBOR installed customers.
We believe that as of the end of the first quarter Elbit systems has a healthy balance sheets.
Good levels of cash and access to credit facilities that providing liquidity when necessary.
We have prioritized cash management and adequate cash reserves to run the business.
During the quarter, we do additional cash from our existing credit facilities to increase all financial flexibility.
We utilize some of our financial resources to secured over supply chain and bill buffer inventories to mitigate the potential impact of 90.
Thanks, then don't do you back Oh, probably 19 on the company's performance will depend on future developments, including the duration in the spread of the pandemic the measures adopted by governments to limit the spread the pandemic and resulting actions that may be taken by our customers and our supply chain.
Turning now to all results.
Yes, we do every quarter, we will provide you with both all regular GAAP financial data as well as certain supplemental non-GAAP information.
We believe that this non-GAAP information provides additional detail to help understand the performance of the ongoing business.
You may find all the details GAAP financial data as well as the non-GAAP information in there and that it goes situation in today's press release.
Overall, we are satisfied with our performance in the quarter, we booked a number of significant contracts that indicates continued momentum across our end markets and sustained demand for all products and services.
Backlog of $10.8 billion provides good visibility ended affects the long term nature of our business.
It generally takes time to finalize contact in our industry, but once we booked then they often provide many years old revenues.
I should also note Acquisitional LP night vision from entering Harry's was closed on September 15 last year and was therefore consolidated into the income statement of El <unk> commencing the they dropped acquisition.
I will now highlight and discuss some of that you see gerson trends you know financial results.
First quarter Twentytwenty revenues of 1 billion or $71 million were up 5% year over year.
In terms of revenue breakdown across all the initial corporation airborne systems sales at 36% of Saes increased the enormity, primarily due to growth in military aircraft systems at to us customers electro optics accounted for 11% of total sales and also increase.
Just year over year, mainly due to the acquisition of the night vision operation into us.
Our diverse geographic revenue base is important to the long term sustainability of our business into quarter North America was the largest contributing 34% the while revenues isn't it was 23% Asia Pacific 20, and Europe's 17%.
The growth in North America into quarter more than offset lower revenues in Israel to Europe and Asia Pacific. There's also in North America was primarily due to the airborne systems seeds as mission and acquisition of Elbit Night vision.
For the first quarter. The non-GAAP gross margin was 27.6% similar to the first quarter of last year at 27.7%.
GAAP gross margin was 27% quote best was 27.2% for the first quarter over last year.
The first quarter non-GAAP operating income was 90.4 million or 8.4% of revenues compared with 84 million or 8.2% of revenues last year.
GAAP operating income was 80 million versus 76 million last year.
Operating expenses breakdown into quarter was as follows.
Net R&D expenses at 7.5% of revenues versus 7.6 last year.
Our investments in R&D as a percentage of revenues significantly above the average about industry, enabling us to maintain and build out to cut logica leadership and underpins our longstanding prospects.
Marketing and selling expenses at 6.6% of revenues versus 7% last year.
On June a expenses at 5.4% of revenues versus 5.2% last year.
Financial expenses for the first quarter of Twentytwenty was 12.5 million compared with 13.9 million last year.
Other income of 1.2 million was impacted by 3.2 million gain from an evaluation of its share of side of it our commercial cyber subsidiary into first quarter.
On May 19, we announced the 70 million investment by Charlesbank capital partners in cyber be.
Hi, good to see 49 million for a portion of the chairs and 22 million was invested inside.
Following the investment in sales. These holdings Elbit systems is now a minority shareholder in Cyberbit.
Cyberbit is held.
That's fair value on our balance sheet.
I just mentioned above into first quarter, we evaluate this hybrids as the negotiations on the investments were going on.
As a result of the closing of the cyber week transaction last week as one of those the completion office sale and leaseback real estate transaction by Elbit systems of America Lastly, we expect to record income before tax of approximately $40 million.
Actual results for the second quarter, Twentytwenty, which will be to at least in August this year.
This income will be eliminated on our non-GAAP results due to the nonrecurring nature opening.
During the second quarter 2019, Elbit systems raised 185 million through the sale of Treasury shares.
You should investors in Israel. This increased our share count by about 2% to 44.2 million shares having a slight corresponding impact on our earnings per share right. So the first quarter 2019.
Our non-GAAP diluted earnings per share was $1.63 cents into first quarter Corbett was $1.54 cents into first quarter last year gap bps was $1.44 cents versus $1.18 cents last year.
Ill backlog of orders as of March 31st Twentytwenty was 10.8 billion 1.1 billion higher than the backlog at the end of the first quarter of 2019, and 760 million higher than that at the end of 29.
Approximately 59% of the current backlog is scheduled to be performed during the remainder of Twentytwenty end Twentytwenty, one and the remainder is scheduled for Twentytwenty two and beyond.
This ratio is broadly similar to that of the first quarter last year.
Operating cash flow for the quarter was 10 million outflow compared to 47 million inflow in the same quarter last year.
Our cash flow into quarter reflects payment to our supply chain and inventory buffers, we built during the quarter to mitigate potential cobiz 19 disruptions as I mentioned previously.
And the systems continues to imagine manage its balance sheet conservatively. Besides our cash we have access to multiple credit lines that can provide us with additional liquidity, we do cash from these facilities during the quarter to increase flexibility and facilitate this most running of our business.
These has increased the cashless on all balance sheets relatively higher levels.
You February meet through these really rating agency affiliated with Moody's reaffirmed our 81 local rating on our Cdis eight nodes following that if you will fall financials.
The board of directors declared the dividend of 35 cents per share for the first quarter of Twentytwenty.
The board decided that that induced dividend for this quarter was appropriate in the current environment as part of the broader at Fort relating to all of our stakeholders with respect combating the potential impact from the Colby thinking but then.
I should know turnover the call to Mr. Machlis our CEO.
Thank you.
I also look like.
Okay, we will do and images, we are implementing 219 from them.
Ill.
What we make incomes and Oprah has been to port the safety recall.
Maybe then business continued view and I'll, let Jim and leverage availability.
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Okay.
ROE.
The.
Hello.
Well for Louise.
Rapidly to our duct owed.
Then maybe because it seems quite independent.
We view below their local management system, well, maybe you could so based on our market leading clinical automotive.
This is Tim has already been wardle.
16 Israeli hope.
We have also develop central system to a multi read.
People are logical problem at the port that woolco and following request for either with the government. We are leveraging alumina said twinkle ability to reduce than today.
Kim will may because.
Could we based in New Hampshire.
Volumes in minutes structures that most equipment medical devices for Didnt good companies.
Dempsey and senior increase you men will you do the coding.
And actively supporting number for our customers by accelerating some product line to support given that most existing London management applications being delayed.
Well, it's growing renewal opportunities for these and other products related to.
Through the combating coping team.
We have implemented.
50 measures to protect our employees, including adding chief in working from home report.
As a critical industry manufacturing, it's almost all facility the arms Award.
When you blend as we walk to the Liberal.
On our commitment to our customer I'm pleased that most of pro operations.
Turning to attend to levels similar to do.
At the beginning with you.
We have allocated additional resources.
I would like Jim and support timely delivery.
In order to overcome possible bookings related directly or indirectly through the from them.
The current situation presents unique challenges.
Could also provide because we've spoken with unit to leverage the lift the global market position, we have achieved.
Look we have developed within Q.
I would highlight our diverse.
Client base.
That has taken Dick to boot and in which we invested significantly significant new to maintain.
Although growth portfolio capabilities, and hence the effectiveness platforms and solutions.
In the cost effective and helping our customers accomplish more mission.
Local.
You will see mentioned we have initiated this year.
Efficiency measures relating to our operations in that.
Our balance sheet to help mitigate potential impact.
What we've seen.
We'll go to that business.
And the quoting is though I would love to discuss the significant and but did you clearly important E.W. corn.
In recent months.
Just a few of the you if you will in Asia Pacific.
Mute.
Through the growth.
Better.
That contributed to the growth in our backlog in the fourth quarter.
A little bit system.
Hasn't been an Israeli defense full both electronic warfare center for accident will many decades and developing the mid dilution W. system for these will go for Navy in going forward.
We will warm the wolf from companies to develop influenced me for the consistent.
Easily a full decided to equipped aircraft, we though systems and following the success.
It is equal number other countries.
The World has chosen.
With that system myth that alone.
In February we were selected but the German hopeful to supply you W system for those CH 50 Threek verticals.
Before loaded performed well to be hopeful.
2019 will eat W system pool, the UK seat to 92.
Under the immune delinquent drugs.
Under $50 million on the system was the right.
You W. food.
Comprise radio and live the one system.
One system comp images.
The did come in active DCM both system.
In March.
You would you be in known reward system for America hopefully you.
You can talk with total venue up to 470.
1 million.
For Q4 will meet for the warning system Fools emission our garden for.
Yes.
This is though first either you can go into you would.
And is an important recognition, but you were hopeful.
The market, leading DW code.
In April we see an approximately 103 million.
Three you couldn't Brooks to full flight comprehensive W.
On April.
In Asia countries in Asia.
As you will see mentioned last week, we will now 70 meal dollar investment by chartering partners inside of.
Oh cyber security, so presumably that full volume market, leading commercial twinning system will suddenly securities soon.
Investment to them every phone to further grow.
Rule in realized significant potential.
We are disappointed unit did as it typically again in cash return to a bit system, while maintaining a minority stake that will allow us to do in future.
Continue to invest since the security capabilities.
We integrated within our will quote for.
In summary.
We continue to we'll talk more to maintain delivery with door customers imported.
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It is too early to assist the impact will be making but Don I am encouraged although activity and begin to with the two bleep pandemic levels.
Were better continues to provide us with significant visibility and we continue to see significant petition that one Gould fall leading hike.
Solution as we won't be generally venue or will they accordingly, although employees customers and suppliers, who will full you will show orders.
And with that we'd be happy to take your questions.
Thank you ladies and gentlemen at this time will begin to question answer session.
Have a question please press star one.
Question for your request please press star to if you're using speaker.
With the handset before passing the numbers or questions. Let me pulled into order DRC. Please stand by volume for for your question.
The first question is from Pete Skibitski Alembic Global Please go ahead.
Yeah. Good afternoon, guys I apologize, if there's any background noise traveling.
But maybe we could talk about cash flow first.
Yes, I think at high expectations to start off the year for cash flow I think it was a little lighter than expected, but I imagine, perhaps koeppen wasn't impact and it sounds like you Ah you helped out your suppliers. So maybe talk a little more about what impacted cash flow in the first quarter and then how that potentially could unwind the bank.
So the year and maybe we can start there.
Okay high basis CRC.
Regarding cash flow Yeah, we would do two things to major things in the first quarter first of all we did Kodak on some of the late.
Cash from all of them missile defense hit in Israel.
Although we didn't get the all of it.
And process now in the second quarter two points of Quebec.
From from that so that is one to one thing within.
The other thing.
We did the use our cash to increase our inventories.
ER to have some buffer inventories to enable us.
I would say independence, almost four hours deliveries and not being dependent on the late deliveries from all of the supply chain.
The increase in that building if you look at our balance sheet loss coastal about $80 million and that has also used up the cash.
In April again look at all it inventory.
Our balance sheet, you would see that we have paid dollars.
All suppliers.
Something close to about $100 million reduce dollar.
Payment increase our payments to suppliers into first quarter.
To enable them to operate properly.
I would use risk.
And again that tool hezbollah's supply chain.
Caused by the end of the day they are partners.
Our business all of that of course has created.
Relation that we reported.
Negative fall for a second doesnt template $10 million off operating cash flow.
We expect going the pool.
We'll continue to collect the cashcall our customers.
And that would probably will definitely move all of the operating cash.
Okay. Okay. Thank you sort of color I appreciate it and then.
Maybe give some detail also on a cost savings measures implemented across the company. It sounds like you know with what's called is coming through the really focused on.
On taking out costs, so maybe can touch on that.
Okay.
There may be able to will.
That all in on this.
We have analyzed all cost basis.
During the first quarter and have taken some.
Some measures.
Some of our people of course, what if any effective in the environment that there were no flights and most of all businesses internationally. So we had tool.
He was there.
Level of activity during the first quarter.
That is one aspect we date, we Havent you list.
We havent used actually temporary reduction the salary assault.
Off management objectives.
In the in the company.
While we have.
Actually that use.
A significantly I'll add overhead expenses whatever possible.
And.
And stop.
Any overhead things that the expenses that could be delayed.
To a period that.
We'll be after the call that 19.
Timeframe.
We did we Didnt know soul.
Some of our short term and long term and critical.
Engineering activities, so that the efforts are focused.
For the doing the meat.
The short term what these absolutely necessary and delaying what that is not that could go in the performance of the programs and the development activities.
So all of this.
I would also mention that.
We are yesterday, when we had our board meeting we were nicely as management were nicely surprised by the initiative of all direct us too.
Suggest a cutting their payment simply pickup in their payment, which is probably not material for the overall performance of the company, but it definitely.
Very positive sign off.
To everybody supporting the company.
I just want to that we're also working we will flow through reduced.
To encode saving to reduce cost of low.
I'm happy to see the though very supportive and that has been goes to review.
The full production cost of weather.
Okay. Thanks for all the color guys I appreciate it.
Maybe one last one for me and I'll get back into queue, but Tom.
From a sales perspective, it looked like the organic revenue growth in the first quarter.
Third off kind of low single digits.
Pads instrument as backlog growth. So I'm wondering are you expecting organic sales growth to accelerate the balance of the year or is there still you know as it's still kind of hard to tell globally with the because of the impact of Cowen.
I think it's a little bit so too early to tell all because of the quality 19 situation.
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Presently we did I.
I mentioned earlier, we do not see a materially impact. However, we do says listen so close slow down in some areas.
It's pretty much depends on how many will get out of this situation.
And that was a strong the impact of course, how all of a.
Revenue growth.
I would show presently I would say, we cannot give us better answer than that.
Okay understood understood. Thanks, so much guys.
Thank you. Thank you.
The next question is from Sheila Kahyaoglu.
Frank Please go ahead.
Hey, good morning, everyone and thank you for the time first I guess I want to know where Pete is traveling kilometer plastic is.
Okay.
[laughter].
I guess following up on keeps question can you clarify for me.
Comments on the supplier payments I think you mentioned 100 million I might've missed the inventory amount in terms that was that all Q1 or is that your expectation for all of 2020, and how do we think about receivables and the timing of the Israeli government payments.
Well above the payables, if you look at our balance sheet.
So the payables number by the end of 2019 compare to the payable to the first quarter wouldn't use the payables significantly that is.
Gross 100 million light and medium or some number close to that so that is one we paid out a dollar suppliers.
So that they.
They would be significantly stronger position to perform day.
Responsibilities. So that is the payables in all our balance sheet.
Regarding the inventories they grew by about 80 million and that is in order to enable us as I mentioned earlier too.
To be able to.
Supply our products in time to our customers and not being dependent on on the critical suppliers chain. So this is the second diagnosis item.
The receivables.
They did not change a lot if you look at all it.
Dollar line on the balance sheet.
We expect to see those receivables during the year and collect that.
Still I'll, Miss still defense or limited behind the time.
Frame for the paying down debt.
But we have intensive discussions with them and now that that is stable government.
In place.
And the hopefully there will be.
And if you budget that you saw sole it looks like that the everything will be line tool tool to solve this issue.
Okay. That's super helpful and then.
Maybe just given the diversification of your backlog geographically.
Now how do we think about what's going on and I know there was some comments in the prepared remarks, what are you seeing from international governments in terms of defense budgets, where are you seeing Mary as it must strengthen perhaps pockets of weakness.
Okay.
Yes.
We don't see a major change.
Right now.
For the weekend or plan.
We see.
You would we see additional investments.
In defense spending and we enjoyed convert.
We see also in in all the other Leo.
And this is mainly to support the look what industry.
And.
We are lucky to have.
Men.
Many for Fidus along the route.
And.
Use of food are in a good position to get the addition of older.
And we'll do well.
And to support the local economies.
We see stability.
In the in Israel in Asia in the you right now.
It's too early judge worked will happen in the future.
Because of the wheel conservative you'll convention.
We are growing.
We are we have good.
Balancing.
We're in a good liquidity situation.
And the.
I believe that.
In the coming in.
The next quarter or maybe the quarter after that.
Joe will be a bit clue.
And then we can understand.
The reduction is going.
We are in a good position.
By having a large portfolio.
And the glow in the strong global.
So we are able to deliver food.
To support different needs.
And also to to help.
Boosting local ocwen.
And I believe.
That's a big chunk of the company and it will help us to overcome.
Difficult due in.
Other markets.
Which might happen.
Sure that's Super helpful. And then just on the C is our market. What are you seeing there I think the business declined in Q1 is that some sort of seasonality.
In that segment and how do we expect it sort of north American on whether it be willing to conclude we see a local potential.
For us into the C domain.
Uh huh.
In many places.
The.
Justin just to remind Vodafone we have been selected to provide the huge quint will communications, Switzerland. That's your communication solution and we do perceived conflicts yet.
The two good.
By the end to you.
We're also into Google positions aneurysms, good to follow on orders and also.
In Australia, and another market. So there's a lot of potential fourth and fifth why we really believe that will lead position.
In this domain.
And as those a lot of inputs and will to potential.
Okay. Thank you very much.
Thanks.
There is a follow up question from Pete Skibitski Olympic Global. Please go ahead.
Yeah, Thanks again guys.
I wanted to see if we can get a little more color about your exposure, maybe just on a 29 basis your exposure to commercial aerospace business Aviation I don't currently in business aviation you'd be lot dropped six on some of the Gulf stream Jets I believe so maybe you could size that business for us overall commercial and business Johnson.
That might even have a greater headwinds this year because.
Some of the slowdowns.
In the commercial IP this as yossi into commercial appeal vacation field, we have actually two major branches off activities. One is related with the commercial avionics.
Yes.
Which.
Acquisition that we didn't ending the U.S. University on makes as part of that.
And also what we had before.
Is the operation for night vision, and others, where the lending that we had.
Previously waves as I've seen that you mentioned.
And some other businesses in Europe in that area.
So we have probably in that that branch will have the property.
Couple of.
About a couple of hundreds of millions of dollars so business.
And we did see a little bit off effect.
Although down.
The decline in that but.
I wouldn't call that material seventh and some regional boes per year.
On average.
And that is in the recent.
Quarter, I mean, if I average yield but the whole here.
So nothing material I would say there.
The other branch that we have is the branch related with the composite materials.
Definitely manufactured parts for make aircrafts and also for questioning tests.
Boeing is one of our customers, but there are some others as well here, we have very long term contracts multi year contracts.
Funded contracts that present, the they are not effective and we deliver on time.
The by all at a supplier I would say, we are probably a third or fourth tier in that levels. So any change in the requirement.
All number of airplanes and so along if that would have stayed with us for four years. Then yes, we will be affected however, the military side of that there is very strong and that is.
The commercial Bob is all only about seven tenths of municipal dollars.
So in total.
We did not.
We see a stronger negative impact on that.
Okay, great great all right. Thanks, so much just one last one for me more minor question.
On the Cyberbit transaction.
Can you remind us I think.
Already we're not booking cyberbit revenue right.
So so nothing should should meaningfully change.
Post that transaction from a revenue.
Do I have that right.
You are right all the older commercial park was not consolidated in our statements at all so.
The military defense cyber East consolidated in our statement, it's part of our C Division and that is actually a very good business and bill.
This element will continue to be was.
Okay. Okay. Thanks, so much further clarification thanks guys.
If there any additional questions. Please press star one if you wish to cancel your request. Please press star to please standby, while we pull for more questions.
There are no further questions at this time before I ask Mr. Mike. Please go ahead.
Closing statement I would like to remind participants that a replay of this call will be available two hours after the conference and.
And the U.S. please call 1888.
Seven eight till four to nine one in Israel. Please call 039 to five five 900 and internationally. Please call nine seven to three nine to five five 900, a replay of the color also be available at the company's website W.
Well you definitely dot dot.
Dotcom.
Mr., Mike would you like to make your concluding statement.
I would like to thank all our employees for their continued hogwart couldn't do challenging starting.
To everyone on the core thank you for joining up to do and for your continued support and interest in our company has a good day and we but.
Thank you. This concludes the Elbit systems Ltd first quarter 2020 results conference call. Thank you for your participation you May go ahead and disconnect.
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